Intel fires 10,500 to make up for past mistakes

The 'Barrett Hangover'

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Intel doesn't mess around when its sales slow. The chipmaker today revealed that it will fire 10,500 workers over the next year in the hopes of improving its bottom line.

Through a combination of layoffs, attrition and the sale of business units, Intel plans to trim its 102,500 person workforce down to 92,000 people by the middle of 2007. To reach the 92,000 figure, Intel will let go of 7,500 people by the end of this year and then another 3,000 people in 2007. Intel expects to save $2bn in 2007 from these actions and then to save about $3bn annually by 2008.

Management, marketing and IT staff will be the hardest hit by the near-term cuts, Intel said. In 2007, the firings will extend more broadly across the company. Intel expects to pay out close to $200m in severance pay.

"These actions, while difficult, are essential to Intel becoming a more agile and efficient company, not just for this year or the next, but for years to come," said Intel's CEO Paul Otellini.

Earlier this year, Otellini okayed the firing of 1,000 managers and the sale of two Intel business units.

Since taking over as CEO in May of 2005, Otellini has run a battered Intel. The company failed to counter the release of speedy, power efficient desktop and server chips from rival AMD. As a result, Intel has lost tremendous amounts of x86 processor market share, particularly in the lucrative server chip segment.

In the past, Intel has been able to count on holding somewhere between 80 per cent and 90 per cent of the x86 chip market. Most analysts now suggest that Intel should become accustomed to taking between 70 per cent and 60 per cent of the market, leaving it with a significantly smaller revenue pie. It's the reality of this shrinking market share that Intel is trying to deal with through these cuts.

Rivals have enjoyed taking shots at Intel over the past two years as the company cancelled numerous products and delayed plenty of others. In addition, Intel had to change its entire processor architecture this year to better address customer needs around power-efficient chips.

Most of Intel's gaffes stem from mismanagement that occurred during previous CEO Craig Barrett's tenure. Chip companies tend to take anywhere between two and four years to rework their product lineups due to the complexity of chip design and fabrication. But while Barrett failed to take the oncoming threat from AMD seriously enough, it's Otellini who has suffered in the public eye for Intel's mistakes. ®